Short-term options from mutual funds? Here's help

If you are looking at returns on a daily basis, the returns could be volatile due to the day-to-day changes in the interest rate in the money market. However, they carry low interest rate risk because of the low maturity profile.

Even as a category, mutual fund investments carry more risk than investing in a bank. While bank deposits carry an assurance up to Rs 1 lakh, mutual funds carry no such assurance.

Also, you cannot issue a cheque against the investment in these funds, as you can against the deposits in your savings bank account.

Short-term options from mutual funds? Here's help

Liquid schemes do not charge any exit load from its investors. While most ultra short-term schemes have done away with these charges, a few might still charge an exit load.

Other charges are similar to what one would pay for any other mutual fund scheme.

What are the tax implications?

The investor can invest in either the growth or dividend option. In case of growth, the tax treatment of these schemes is on par with that for bank fixed deposits, where the income generated is added to the investor's income and taxed according to the tax slab.

For dividend, the income is tax free at the hands of the investor, as the tax is deducted by the mutual fund itself.